Financial markets worried about ‘Trussenomics’

Liz Truss’s overwhelming focus on cutting taxes seems to have spooked the financial markets, according to Hargreaves Lansdown.

Truss has ruled out imposing a windfall tax on energy companies, while she is expected to reverse the National Insurance hike, as well as cut VAT from 20% to 15%.

As a result it’s thought her policies could cause the national debt to rise and fail to help many of those hit by the cost-of-living crisis.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: Trussenomics policies risk creating a fresh tangle of problems for the UK economy, just as the energy crisis has intensified.

“Slashing income taxes, corporation taxes and direct taxes like VAT while also dangling the pledge for extra help for households facing punishing energy bills risks pushing the country much further into the red at a time when the country’s debt pile is already mounting fast.

“The thorn in her side is that around a quarter of government-issued debt is inflation linked, and with forecasts showing the headline rate could reach an eye watering 22%, the cost of servicing that borrowing is shooting up.

“There is considerable nervousness surrounding her strategies which has already been reflected in the reaction on financial markets to her impending arrival in Downing Street.

“The pound has scuttled to fresh lows against the dollar, down to $1.14 and on the bond markets gilts have been selling off, sending borrowing costs soaring.

“The yield on 10 year government debt, which is a proxy for the effective interest rate on public borrowing is at 2.92%, heading back up to last week’s highs.

“Yields have registered the biggest monthly rise since 1986 as the leadership race intensified and promises made threatened to cause fresh problems for UK economy.”
the independent watchdog The Institute for Fiscal Studies has warned that tax cuts are not a strategy for growth and could end up fuelling inflation instead.

Hargreaves Lansdown said it would like to see more support for vulnerable people in the form of subsidised energy tariffs for those facing the biggest financial challenges, or additional payments for those on the very lowest incomes through the Universal Credit system.

Meanwhile energy bills should be frozen in some way, there should be more investment into renewable energy sources, while there could be support for business in the form of a business rate tax cut.

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